The decedent, several years prior to his death, transferred to a trustee certain securities in trust, to be held, managed, and disposed of as an active trust, the net income thereof to be paid to the decedent's daughter during her life, with remainder over to the persons named. The trustee was given discretionary power to determine the trust whenever the trustee might deem it wise to do so, whereupon the estate was to revert to the grantor. The indenture contained a further provision that if the daughter predecease the grantor, the trust shall terminate and the trust estate be transferred, paid over, and delivered to the grantor, to be his absolutely. It is this latter provision which gives rise to the question we are called upon to consider. By the terms of the indenture, the grantor recited that it was his intention to make for the benefit of his daughter 'an absolute and irrevocable gift and settlement of the property * * * so that the grantor shall during the life of his said daughter have no further individual or beneficial interest therein.' The grant was final and absolute in terms, and beyond the power of the grantor to revoke or alter. At the death of the grantor, neither of the contingencies upon which the trust estate would revert to the grantor had taken place.
The Commissioner assessed a deficiency tax against the estate upon the view that the grantor, having reserved the right to a revestment in him of the trust property, title to which he had conveyed, upon the happening of either of the contingencies mentioned, the transfer to the trustee was one cintended to take effect in possession or enjoyment at or after his death' within the meaning of section 302(c), Revenue Act of 1924, c. 234, 43 Stat. 253, 304 (26 USCA § 411 note).
The Board of Tax Appeals decided against the Commissioner's view (28 B.T.A. 107), and its holding was upheld by the court below. 75 F.(2d) 416.
The substantive provision of the act which imposes the tax is section 301(a), 26 USCA § 410 note; and by that provision the tax is laid 'upon the transfer of the net estate of every decedent dying after the enactment of this Act.' The event which gives rise to the tax is the death of the decedent, with the resulting transfer of his estate either by will or the law relating to intestacy. When, therefore, section 302(c) includes within the purview of section 301(a) a transfer inter vivos 'intended to take effect in possession or enjoyment at or after his death,' it does so upon the theory that such a transfer in effect is testamentary; that is to say, a substitute for either a disposition by will or a passing in virtue of intestacy.
'But such a transfer, not so made, embodies a transaction begun and completed wholly by and between the living, taxable as a gift (Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226), but obviously not subject to any form of death duty, since it bears no relation whatever to death. The 'generating source' of such a gift is to be found in the facts of life and not in the circumstance of death. And the death afterward of the donor in no way changes the situation; that is to say, the death does not result in a shifting, or in the completion of a shifting, to the donee of any economic benefit of property, which is the subject of a death tax, Chase Nat. Bank v. United States, 278 U.S. 327, 338, 49 S.Ct. 126, 73 L.Ed. 405, 63 A.L.R. 388; Reinecke v. Northern Trust Co., 278 U.S. 339, 346, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397; Saltonstall v. Saltonstall, 276 U.S. 260, 271, 48 S.Ct. 225, 72 L.Ed. 565; nor does the death in such case bring into being, or ripen for the donee or any one else, so far as the gift is concerned, and property right or interest which can be the subject of any form of death tax. Compare Tyler v. United States, 281 U.S. 497, 503, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758. Complete ownership of the gift, together with all its incidents, has passed during the life of both donor and donee, and no interest of any kind remains to pass to one or cease in the other in consequence of the death which happens afterwards.' (Italics added.) Heiner v. Donnan, 285 U.S. 312, 322, 323, 32 S.Ct. 358, 359, 76 L.Ed. 772.